James J. and Sandra A. Gales - Page 11


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               B.  Discussion                                                          
                    1.  Arguments of the Parties                                       
               Respondent argues that petitioners have failed to establish             
          the amount of advance commissions received by petitioner.                    
          Alternatively, respondent argues that the possibility that                   
          petitioner would ever have to repay any advance commissions was              
          so remote that it must be disregarded, so that, in effect,                   
          petitioner had no liability for repayment of advance commissions,            
          and the advance commissions were an item of gross income in the              
          nature of compensation for services.  Petitioner argues that, in             
          form and substance, the advance commissions were loans and should            
          be treated as such for Federal income tax purposes.                          
                    2.  Substantiation                                                 
               The agreement provides for advance commissions, and the                 
          March 31 and May 1 letters (terminating petitioner’s engagement              
          by IMA) are ample evidence of IMA’s practice of paying advance               
          commissions.  Petitioner testified that he determined the amount             
          of advance commissions for 1992 and 1993 (referred to in our                 
          findings of fact as “the 1992 and 1993 reported loan amounts”) by            
          subtracting from the 1992 and 1993 payments the amounts appearing            
          on statements received from IMA showing commissions earned for               
          1992 and 1993 (earned commissions).  The parties agree as to the             
          amounts of the 1992 and 1993 payments.  The IMA statements are               
          not in evidence, and the only evidence we have as to their                   
          existence and content is petitioner’s testimony, as reflected in             
          his tax returns.  Respondent objects to petitioners’ proposed                



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